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  <h1>Investment section</h1>

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   <p>Actuarial practice is the subject that makes you happy everyday.</p>
   <p> In answering all the questions, notice the following tips. </p>
   <ul>
     <li>For all the questions, you need to state Basic fact + explanation.</li>
     <li>Provide enough details is rather important. </li>
     <li>Even for a “list” question, more explanation is needed than that.</li>
     <li>Give example where appropriate</li>
   </ul>

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    Institutional investors invested in overseas markets for two main reasons:
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      <ul>
        <li>higher expected returns
          <ul>
            <li>this can come from investing in emerging markets (that may have rates of economic growth than more developed markets) or from investing in opportunities that are not available domestically
            </li>
            <li>Local currency is expected to depreciate
            </li>
            <li>It may also regard overseas bonds as providing protection against domestic inflation in some circumstances (but unlikely to be as effective as index-linked domestic bonds)
            </li>
          </ul>
        </li>
        <li> lower risk
          <br>
          either as a result of increased diversification from domestic markets or when matching liabilities denominated in other currencies However, as will be discussed below, there are a number of additional problems faced when investing in overseas markets.
        </li>
      </ul>
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      Problems
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      <ul>
        <li>
          Adverse currency movements:
          For investors with domestic liabilities, investing overseas creates a mismatch between the assets and the liabilities and also leads to higher volatility in the return achieved …
          <span class="highlight">however, these problems can be overcome (at a cost) by hedging the exchange rate risk.</span>
        </li>
        <li>
          Taxation:
          Overseas investment will often be less tax-efficient than domestic investment,
          as (withholding) tax will often be deducted at source from dividends or other income
          paid to overseas investors … and, the investor may also be liable for further tax domestically.
          In some cases, this can be offset if a double taxation agreement exists with the overseas country.
        </li>
        <li>
          Expenses and expertise:
          Overseas investment will often be more expensive, as additional expertise will be needed to analyse the information.
           Dealing costs may also be higher (especially in smaller markets) and a local custodian may be required to manage
           the assets.
        </li>
        <li>
          Additional practical problems
          <ul>
            <li>lack of information about company and/or market
            </li>
            <li>language problems (although many larger overseas companies will publish accounts in English)
            </li>
            <li>differences in accounting practices and disclosure regulations
            </li>
            <li>markets may be poorly regulated (particularly in smaller, developing economies)
            </li>
            <li> liquidity may be lower in less developed markets
            </li>
            <li>risk of adverse political developments (e.g. restrictions on foreign investment/ownership or seizure of assets)
            </li>
            <li>time delays (although advances in communication have reduce the effect of this in recent years)
            </li>
          </ul>
        </li>
      </ul>


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      An investor can obtain overseas exposure indirectly by:
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        <ul>
          <li> investing in multinational companies based in the domestic market
          </li>
          <li>investing in domestic companies with significant overseas exposure
          </li>
          <li>investing in collective investment vehicles specialising in overseas investment.
          </li>
        </ul>
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            Emerging markets
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            Advantages
            <ul>
              <li>higher returns due to rapid economic growth, provided that share prices do not already reflect this!
              </li>
              <li>better diversification from domestic market, as may be less interdependent than developed markets
              </li>
              <li>potential inefficiencies may allow investors to buy cheaply
              </li>
              <li>higher risks (and, therefore, lower demand) may also allow investors to buy cheaply
              </li>
            </ul>
            Disadvantages
            <ul>
              <li>
                identifying under-priced investments will be more difficult as good quality information may not be available
              </li>
              <li>
                markets may well be poorly regulated, which increases the risk of losses due to insider trading and/or fraud
              </li>
              <li>
                emerging markets are much more volatile than developed markets e.g. changes in capital flows by institutional investors can cause large falls (e.g. Asian crisis in 1997)
                also, currency volatility likely to higher
              </li>
              <li>
                marketability may be lower and/or range of investments limited
              </li>
              <li>
                may have greater political instability, tighter controls on foreign ownership and/or problems repatriating funds
              </li>
            </ul>
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  <p> Author: Mengke, Lyu</p>

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